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JUDY WOODRUFF: The president told the audience he will unveil an overall housing strategy in the weeks ahead. Later, he returned to Washington to meet with conservative House Democrats. It was his latest attempt to win support for a final version of the stimulus bill when it comes to a vote. In the meantime, Treasury Secretary Geithner promised there will be more on the broader financial rescue effort in the days ahead.

JIM LEHRER: Gwen Ifill takes it from there.

GWEN IFILL: The moment Secretary Geithner`s plan landed today, Washington and Wall Street began trying to make sense of it. The basic question: Will it work? We get an assessment from four prominent voices. Paul Krugman was awarded the Nobel Prize for Economics last year. He`s a professor at Princeton University and a columnist for the New York Times. Ken Rogoff is a former chief economist at the International Monetary Fund. He`s now a professor at Harvard University. Alice Rivlin has served as vice chair of the Federal Reserve and was White House budget director during the Clinton administration. She`s now with the Brookings Institution. And Donald Marron is a longtime leader in Wall Street finance. He`s now the founder and chairman of Lightyear Capital, a private equity firm that invests exclusively in the financial services industry. Welcome to you all. Secretary Geithner said today, Ms. Rivlin, that the American people have lost faith in the banks, in the financial system, and in government`s ability to fix it. Was his plan today the turnaround?

ALICE RIVLIN, Former White House Budget Director: I`m afraid he`s right about the problem: There is a lot of disappointment with the banks and anger out there. His plan is bold. It`s comprehensive. It isn`t very detailed. But I think it is a courageous try to use a lot of different tools to fix the problem. And I think it`s likely to have success, but none of us can tell. The one thing we do know is we need a functioning banking system and we need credit flowing again, because unless we have that, nothing else matters. The stimulus plan will create jobs, but unless banks give credit and people are able to get car loans and consumer loans and so forth, the economy just won`t function.

GWEN IFILL: Paul Krugman, a courageous try?

PAUL KRUGMAN, Columnist, New York Times: I wouldn`t have put it quite that way. I mean, there was nothing -- there`s a possible interpretation of the plan which makes it a good plan. But the truth is it was very vague. And a lot of people -- as you can see, Wall Street was disappointed. And a lot of people, myself included, were disappointed that it wasn`t a clear path forward. Above all, there was no clear answer to the question of what happens if you find out, as they probably will, that a number of major banks are basically not solvent. So a key element to the plan which I like is the idea of a stress test. We`re going to go out and have government auditors go and look at the books of major banks and really see, you know, what have they got? What shape are they in? But the plan is very vague about what happens if the news that comes back from those auditors is bad. So I think, actually, this plan was in a lot of ways kicking the can down the road. It didn`t resolve the big issues.

GWEN IFILL: Ken Rogoff, did it make an effort, a courageous effort at trying, or did it just kick the can down the road?

KENNETH ROGOFF, Harvard University: Well, I think you can say there was no decisive move in the wrong direction, but it was very convoluted and obscure, this public partnership, public-private partnership. How much are they going to pay? What are the incentives? It`s not clear. They say they`re going to look at the banks and put capital in the ones that can lend. How are they going to figure this out? There`s going to be a housing plan. They didn`t give details, and so forth. I think we really need simplicity, clarity, transparency at this point. Secretary Geithner talked a lot about needing transparency from the private sector, from the banks. What about the government?

GWEN IFILL: Don Marron, I want to ask you, from the point of view of the private equity world, we saw what happened on Wall Street today. It wasn`t well received at all. Is this something that people were expecting to be much more than it was?

DON MARRON, Lightyear Capital: Well, first, I have to say it`s really great to be on a program with three extraordinary economists. I have to be careful of what I say in terms of numbers. I think the first thing to say is there are three things that have to be done, and it`s a simultaneous equation. The United States has saved the banks, but they haven`t fixed them. The housing crisis I think got us into this, and they have to work on getting it out. And, third, the consumer in the end has to find a reason to come back into the market. Now, this plan is aimed to address these things. I think the first thing you have to say, the fact that it wasn`t very specific -- which is, of course, what hurt Wall Street today -- shows how complex the problems are. Here is the secretary of the treasury, Tim Geithner, arguably the man -- he understands these businesses, who has the most information about what`s going on, and some time to have worked with this plan, yet he hasn`t yet been able to present highly specific things. So it is an issue. But you have addressed the key issues here in the plan, really, which is the only way you`re going to solve this with the banks, getting rid of the toxic assets and creating new assets, is for the government either to lend most of the money to the buyers or to guarantee the downside, or maybe some combination of the two, and you can see that that plan addresses the problems in that fashion.

GWEN IFILL: Alice Rivlin, not a lot of details, everyone seems to agree, but there were some ideals that were laid out today by the treasury secretary, one of them Paul Krugman referenced which is this idea of a stress test, basically making these financial institutions monitor themselves or have someone else monitor them to find out whether they`re worthy of this kind of support. Is that something you think is a good idea, that`s workable?

ALICE RIVLIN: Absolutely. I think this improves on the last plan, the so-called TARP, which actually kind of handed out money in a fairly random fashion. This says that the collection of regulators, not just the Treasury, but the Federal Reserve and the Federal Deposit Insurance Corporation, they will all go in together and they will look at the banks in great detail, their strengths and their weaknesses and their balance sheets, and they will stress test in the sense that they will play a game. They will say, "Suppose the economy gets a good deal worse. What will happen to this bank?" Now, that`s a good thing to do. And based on that analysis, they will decide, "Is this bank OK? Or does it need an injection of capital? Or is it so weak that it isn`t going to make it?" And then they will have to do something else, and they haven`t specified what.

GWEN IFILL: Well, that`s the problem. What is the something else? Is it just to allow it to fail?

ALICE RIVLIN: No, it would be some kind of orderly resolution of the problem. One can hope there aren`t very many of those institutions. There are surely going to be some. But the main thing is to get capital to the banks that are strong enough so that they can use it and start lending again and not so strong that they don`t need it.

GWEN IFILL: Paul Krugman, were you trying to get in there?

PAUL KRUGMAN: Yes, I think the -- I disagree that there are not going to be very many. I mean, the way a lot of us have been looking at this is that it looks as if a substantial part of the banking system -- quite a lot of the major banks -- are probably actually not viable right now. They actually -- if you were really going to look at what the market would be willing to pay for their assets, they actually are insolvent. And what you -- what`s called for, ultimately, is something like what happens with a failed bank. The government does not shut it down. The government seizes it, cleans out the stockholders, what was done with failed savings and loans. The government takes the bad assets, also pays off some of the debt, essentially a temporary nationalization, getting banks back. They did not bite that bullet, but they did not rule it out, either.

GWEN IFILL: They bit part -- he went kind of halfway on that, didn`t he?

PAUL KRUGMAN: Yes. I mean, in fact, look, the favorable interpretation from my point of view is that this whole thing with the stress testing may end up being sort of a Trojan horse to smuggle the good guys into the fortress, that the public isn`t ready, Congress isn`t ready for major nationalization, but this is a way to set things up so that, if that proves to be necessary when you can take a good, hard look at the books, we sort of got the mechanism in place. That`s what we`re hoping the plan means, but, you know, it was really pretty unclear what exactly is going on.

GWEN IFILL: I wonder what Ken Rogoff thinks about that.

KENNETH ROGOFF: Well, I agree with what Paul said. I mean, they`re going to look at the books and go, "Oh, my gosh, look how deep the hole is. It`s a couple trillion dollars," if we`re realistic. And the question is, what are they going to do? How much are the taxpayers going to go in? I think we do need some form of receivership, FDIC workout, call it nationalization, to try to clean up the banks and re- privatize them. I worry that, if they`re not planning to do that pretty quickly, we`re going to be a year from now, we`re going to have spent the stimulus money without having the banking system jump-started at the same time, we`re going to have spent a lot of this money -- which could end up trillions, really -- on the banking system, and we`re not going to have got things going. I think they need to move decisively soon and not just sit on this. Hopefully what Paul said is right. This is a stocking horse; they`re going to do it. But I would have liked to see something much more decisive now.

GWEN IFILL: Don Marron, if Paul Krugman and Ken Rogoff are right, will that send the financial service industry into a tailspin, the prospect of some form of nationalization?

DON MARRON: Well, I don`t think that nationalization is something anybody would like. On the other hand, if you take the money from the government, you have to play by the government`s rules. And I think the issue here is, the banks got into these kinds of businesses and these kind of securities because they were highly profitable back in the old days, in `07 and `08. What the government is going to have to look at now is, if you take that business out of the bank -- that is, you buy those toxic assets or you neutralize them -- is what you have left, an intelligent, healthy business, which carries out the major function of the bank, which is to take your money safely and give it back to you when you want it, and to make loans to you, and the "you" are individuals, they`re small businesses, and they`re big corporations. I think for many of the big banks what they`re going to find is their basic business is fine but they may be in too many businesses. Hard to manage. So they may ask these banks to cut back on the things that they`re doing. But many banks have a very good model. Also, if you talk about regional banks or community banks, they serve a very important purpose in their community, one that would be very hard to replicate in some other fashion. So the question is, do these banks have a real basic strong franchise without the toxic asset business that they got themselves into?

GWEN IFILL: You know, Alice Rivlin, one of the lines that the secretary and the president appear to be trying to walk here is this argument about saving the taxpayers versus saving the banks. To that extent, we`ve heard the secretary talk about housing, a still un-detailed housing rescue program. And we also heard this same language being used to -- as part of the appeal for the stimulus package that passed the Senate today. How much of what the secretary announced today, in terms of providing bridge loans or helping out small-business, consumer loans, how much of that is workable? How much of that needs to be the focus of this?

ALICE RIVLIN: Oh, I think that is a very interesting part of this program. The part of the economy that is closest to the consumer is the consumer loan, the auto loan, the small-business loan, and those need to be flowing again. And the reason they`re not flowing again is that we habitually securitize those. We package them into securities, and there`s no market for those securities. So what they`re saying is, we`re going to make a big effort to pull in the private sector, but with government money and government inducements we`re going to get the secondary market in those kinds of loans moving again.

GWEN IFILL: Paul Krugman, what do you think about that?

PAUL KRUGMAN: Yes, I mean, that part is the part that bothers me least, you might say. I mean, I think there`s a reasonable chance. The Fed has been doing stuff like this already with some success. Believe it or not, those markets are actually a little bit better functioning than they were a couple of months ago, so that`s been some success. And they basically -- that`s the least controversial, I would say, part of the plan, is to provide some money. But that`s -- you know, that doesn`t get at the core issue of the basically crisis-level problems of the banks. So, sure, that part is basically helping the Fed do more of loosening up the markets, but we`re hoping for something much bigger than that. And the big disappointment was that they have not, in fact, come up with any clear plan about what it is they`re going to do about the fundamental weakness of the banks.

GWEN IFILL: Ken Rogoff, we`re talking trillions of dollars here just so far. Is it enough? Is it too much?

KENNETH ROGOFF: Well, I think, before this is over, we`re going to be talking many more trillions of dollars. I think that`s just going to get spent. And the issue is to spend it productively. The fiscal package is a way to jump-start the economy, but it needs to be done in conjunction with a realistic banking program. I`m not sure we`re seeing it yet. I worry that time is just going to drag on and we`re still going to be in the soup. I think this is going to end up costing many trillions of dollars.

PAUL KRUGMAN: Gwen, can I just weigh in? I mean, what we know from previous crises -- a lot of it, actually, Ken Rogoff`s work -- is that these things tend to be very, very expensive. And one of the problems we`re having right now, which I think is part of why everyone was disappointed with this announcement, is that nobody is really ready to wrap their minds around the scale of what needs to be done. And even the Obama administration is not ready to wrap its mind around that.

GWEN IFILL: Well, let me ask Don Marron about scale. That seems to be the big question in the end. No matter how good these ideas are, is anybody prepared for this scale?

DON MARRON: Well, the answer is that the government has to put in as much money as it needs to get this done. The key issue here is that these securities and the things that underlie them are not liquid. In our markets, the more liquid something has, the more value it has, usually. Right now, they can`t be sold, partly because they can`t be valued and partly because they`re just way too complex. So the government is approaching it two ways. It`s talking about the new things that Alice was talking about, new securitizations, new packaging of new loans. Now, that is crucial to get the banks restarted in lending; that should be able to be done. They`ll get private equity firms like ours and others to come in and buy those loans. They`ll have to offer, importantly, easier terms, in terms of loans and guarantees. The rest of it is, all the rest of those things that are on the balance sheets of the banks, they`re not liquid. They can`t be totally valued. They say they`re going to deal with the market out there to do it. That is the hardest thing, because in the beginning, the market`s going to be scared of the downside, not looking it at the upside. I think they`re going to have to provide a floor under these assets, even though in some cases it may provide an extra profit for some.

GWEN IFILL: Don Marron, Ken Rogoff, Paul Krugman, and Alice Rivlin, thank you all very much.

(BREAK)

JIM LEHRER: In other economic news today, the price of oil plunged after the Energy Department issued a new forecast of falling demand this year. In New York, oil was down 5 percent, to finish below $38 a barrel again. General Motors announced it`s cutting 10,000 salaried jobs. That`s 14 percent of its white-collar workforce worldwide. That move came a week before G.M. must submit a restructuring plan to Congress to keep billions of dollars in federal loans. And in more news of the day, the death toll from terrible fires in Australia climbed higher. Officials said the final tally could top 200. We have a report on one of the hardest-hit towns from Libby Weiner of Independent Television News.

Originally broadcast, 2.10.09